Fresh food the real revolution in supermarket aisles

Grocery suppliers have more to fear from retailers trying to lift sales of fresh food than the expansion of private label products, says Nielsen executive director of retail services Kosta Conomos.

Woolworths
and
Wesfarmers
’ Coles are devoting more floor space to fresh food such as fruit and vegetables, meat, fish, dairy and chilled meals – thus reducing space for packaged groceries and general merchandise.

“There’s huge emphasis in the grocery aisles on branded versus private label but the elephant in the room is that as fresh food grows, the pressure on shelf space in packaged groceries will continue to escalate," Mr Conomos said.

“I’m telling suppliers to look more broadly across the total store because it’s the big fresh thing coming up behind you that’s going to intensify the fight for space in stores."

Higher margins

The two supermarket giants are using fresh food to capture a bigger share of total food spending and to boost margins. Fresh food generates higher gross margins than packaged groceries.

Woolworths estimates its share of fresh food sales is about 28 per cent, well below its 36 per cent share of packaged groceries. It wants to generate an extra $2.5 billion in fresh food sales over the next few years through direct sourcing from suppliers, shortening the supply chain and better merchandising and presentation.

Coles has not articulated its targets, but in its new format “renewal" stores about 30 per cent of floor space is devoted to fresh food, up from about 20 per cent. Coles has converted about one-third of its stores to the new format.

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A spokesman said the “renewal" stores were about 40 per cent larger than old-format stores – between 3500 and 4000 sq metres – increasing shelf space for both fresh and packaged groceries.

“There’s more groceries in those stores than ever before," the spokesman said. “Any idea that by promoting fresh we are reducing choice in groceries is nonsensical.

“We don’t have targets on private label or fresh produce because our fundamental view is that customers decide whether the products we offer provide quality and value.

“If they don’t, they won’t buy them, they’ll go outside and buy them from a competitor," he said.

Obstacle to branded suppliers

The Australian Food and Grocery Council, which represents major packaged grocery manufacturers such as Goodman Fielder, Unilever, Arnott’s and Nestlé, acknowledges that demand for fresh food and semi-prepared chilled meals is growing strongly.

But AFGC chief executive Gary Dawson fears the growth in fresh food shelf space could become another obstacle for branded suppliers, which are already losing to private label brands.

“In a sense, fresh is a complete private label play," Mr Dawson said. “There are innovative companies working in that space and if they can’t access the shelves, then it has a chilling effect on innovation. The same issues around private label apply and consumers could be the losers."

For example, chilled organic soup maker Pitango, which was part of the collapsed Rosella Foods group, is believed to have had its products delisted in favour of a private label .

Retailers, however, say the growth of private label groceries is opening up opportunities for small food suppliers.

Push for more local sourcing

Woolworths, for example, has signed a small NSW company, The Right Food Group, to make a range of organic sauces under its Macro label.

“Their passion was making sauces but they struggled to sell them under their own brand in supermarkets because they have no marketing budget and expertise and couldn’t afford an account manager," said Woolworths managing director of Australian supermarkets, Tjeerd Jegen. “We launched those sauces under the Macro brand and they have gone from two employees to five employees."

Coles says its strategy to source more local brands through its “Meet the buyer" program has also proved a boon for small grocery suppliers.

According to Nielsen figures, sales for the top five grocery suppliers grew just 1.5 per cent last year, while sales for the next 100 suppliers grew 3.6 per cent and the next 100 by 7 per cent.

“What’s happening is that the small enterprises are growing faster than the largest food manufacturers," Mr Conomos said.

“Part of that is because they are coming off a smaller base but there’s a push for more local sourcing by the major retailers as well.

“A lot of the discussion gets centred on the big suppliers and that’s where the friction exists, but under the surface there are some good news stories too."

Code of conduct

The push into private label and fresh food comes as the major retailers negotiate a voluntary code of conduct with grocery suppliers.

The retailers and the AFGC say they are still negotiating in good faith, after more than six months of talks, but success hangs in the balance.

Late last week, the AFGC gave its final draft of the voluntary code to the government and retailers.

The document is believed to include conditions aimed at protecting suppliers, which are compelled to divulge confidential information to retailers.

“This has never been done before in Australia," a Coles spokesman said. “So it’s not surprising that it’s taking time and there are particular issues that will be difficult to resolve.

“Ninety per cent of the code has been agreed and is non-contentious. We are arguing over 10 per cent," he said, without giving details.